CUET UG Economics Booster Test 2 - Basic Concepts of Macroeconomics -

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CUET UG Economics Booster Test 2 - Basic Concepts of Macroeconomics

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 2 - Basic Concepts of Macroeconomics

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QUESTION 1 OF 20

The economic wealth of a nation does not depend on mere possession of resources, but rather on how these resources are combined with human energies to generate a _____.

Answer Review

1 The economic wealth of a nation does not depend on mere possession of resources, but rather on how these resources are combined with human energies to generate a _____.

A double count

B capital wear and tear

C single entrepreneur enterprise

D flow of production

💡 Short Explanation

�� Economic growth depends on productive use of resources. �� Production requires the combination of resources and human effort. �� This combination creates a continuous flow of production.

✅ Correct Answer Explanation

The economic prosperity of a nation depends not merely on possessing natural or man-made resources but on how effectively these resources are combined with human labour and entrepreneurship to produce goods and services. This continuous creation of goods and services is known as the flow of production. Hence, Option D is correct. Option A is incorrect because double counting is an error in national income estimation. Option B is incorrect because capital wear and tear refers to depreciation. Option C is incorrect because production depends on all factors of production, not a single entrepreneur. Option D correctly describes the result of combining resources with human effort.

❓ Why Other Options Are Incorrect

�� Option A → double count
Double counting is an accounting error that overestimates national income.
�� Option B → capital wear and tear
This refers to depreciation, not the objective of combining productive resources.
�� Option C → single entrepreneur enterprise
Production requires all factors of production rather than entrepreneurship alone.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Identify the phrase that logically completes the production concept discussed in the statement.

Final Logic:

Combining resources with human effort generates a flow of production; therefore, Option D is correct.

🧠 Memory Trick

Resources + Labour = Production Flow

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Meaning of Production

2 Match the contributions to production (List 1) with their respective remunerations (List 2):

List 1	List 2
1. Human labour	a. Rent
2. Capital	b. Profit
3. Entrepreneurship	c. Wage
4. Fixed natural resources	d. Interest

A 1-b, 2-c, 3-d, 4-a

B 1-a, 2-b, 3-c, 4-d

C 1-d, 2-a, 3-b, 4-c

D 1-c, 2-d, 3-b, 4-a

💡 Short Explanation

�� Every factor of production earns a specific reward. �� Labour earns wages, capital earns interest. �� Entrepreneurship earns profit and land earns rent.

✅ Correct Answer Explanation

Economics assigns a specific remuneration to each factor of production: Human labour → Wages Capital → Interest Entrepreneurship → Profit Fixed natural resources (Land) → Rent Thus, the correct matching is 1-c, 2-d, 3-b, 4-a, making Option D correct. The other options mismatch one or more factor-income relationships and therefore do not follow the standard NCERT classification.

❓ Why Other Options Are Incorrect

�� Option A → 1-b, 2-c, 3-d, 4-a
Incorrectly assigns profit to labour and wages to capital.
�� Option B → 1-a, 2-b, 3-c, 4-d
Incorrectly exchanges almost every remuneration.
�� Option C → 1-d, 2-a, 3-b, 4-c
Incorrectly assigns interest to labour and rent to capital.

🎯 Strategy

Used

Option Grouping

Application:

Recall each factor-reward pair and eliminate options containing incorrect combinations.

Final Logic:

Labour–Wages, Capital–Interest, Entrepreneurship–Profit, Land–Rent; therefore, Option D is correct.

🧠 Memory Trick

LWIP → Labour-Wages, Interest-Capital, Profit-Entrepreneur, Rent-Land

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Factors of Production and Factor Income

3 Which of the following combinations of statements about final goods transformed during consumption is correct?
I. Tea leaves brewed in a restaurant for sale to customers are considered final goods.
II. Cooking at home is not an economic activity, even though the food undergoes transformation.
III. Home cooked food is not sold to the market, so it remains out of the active economic flow.

A I and II

B II and III

C I and III

D I, II, and III

💡 Short Explanation

�� Home cooking is a non-market activity. �� Goods produced for self-consumption are outside the active economic flow. �� Restaurant production is a market activity, but tea leaves themselves are intermediate goods.

✅ Correct Answer Explanation

Statement II is correct because cooking at home is generally treated as a non-economic activity in national income accounting since it is not exchanged in the market. Statement III is also correct because home-cooked food is consumed by the household itself and is not sold in the market, so it remains outside the active economic flow. Statement I is incorrect because the tea leaves used by the restaurant are intermediate goods. The cup of tea sold to customers is the final good or service, not the tea leaves themselves. Therefore, only Statements II and III are correct, making Option B the correct answer.

❓ Why Other Options Are Incorrect

�� Option A → I and II
Incorrect because Statement I is false.
�� Option C → I and III
Incorrect because Statement I is false.
�� Option D → I, II, and III
Incorrect because all three statements are not true.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement independently before selecting the combination.

Final Logic:

Only Statements II and III satisfy NCERT definitions; therefore, Option B is correct.

🧠 Memory Trick

Home Cooking = Non-Market

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Final Goods and Economic Activities

4 Steel sheets used for making automobiles and copper used for making utensils are classic examples of:

A Intermediate goods

B Capital goods

C Final goods

D Consumer durables

💡 Short Explanation

�� These goods are used as production inputs. �� They undergo further transformation. �� Their value becomes part of the final product.

✅ Correct Answer Explanation

Steel sheets and copper are purchased by producers for further processing into automobiles and utensils. Since they undergo additional transformation before reaching consumers, they are intermediate goods. Their value is incorporated into the final goods and should not be counted separately while estimating national income. Therefore, Option A is correct. Option B is incorrect because capital goods help produce goods but are not transformed. Option C is incorrect because these materials are not purchased for final use. Option D is incorrect because consumer durables are long-lasting household goods.

❓ Why Other Options Are Incorrect

�� Option B → Capital goods
Capital goods assist production but are not converted into the final product.
�� Option C → Final goods
Final goods are purchased for ultimate consumption or investment.
�� Option D → Consumer durables
Consumer durables are used directly by households.

🎯 Strategy

Used

Elimination

Application:

Differentiate goods used as production inputs from goods used directly by consumers.

Final Logic:

Steel sheets and copper are production inputs; therefore, Option A is correct.

🧠 Memory Trick

Raw Material = Intermediate Good

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Intermediate Goods

5 Arrange the following items from the lowest durability (consumed immediately) to the highest durability (used for continuous production cycles):
1. Machines in a factory
2. Food
3. Consumer electronics

A 1, 3, 2

B 3, 2, 1

C 2, 1, 3

D 2, 3, 1

💡 Short Explanation

�� Food is consumed immediately. �� Consumer electronics last for several years. �� Factory machines have the longest productive life.

✅ Correct Answer Explanation

The order should move from least durable to most durable. Food is consumed almost immediately after purchase. Consumer electronics such as televisions and computers provide services for several years. Machines in factories are capital goods designed to operate through multiple production cycles and generally have the longest useful life. Hence, the correct sequence is: Food → Consumer Electronics → Factory Machines 2 → 3 → 1 Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

�� Option A → 1, 3, 2
Incorrect because it begins with the most durable item instead of the least durable.
�� Option B → 3, 2, 1
Incorrect because consumer electronics are more durable than food.
�� Option C → 2, 1, 3
Incorrect because factory machines are generally more durable than consumer electronics.

🎯 Strategy

Used

Odd One Out

Application:

Compare the useful life of each item and arrange them from shortest to longest.

Final Logic:

Food has the shortest life, consumer electronics have medium durability, and factory machines last the longest; therefore, Option D is correct.

🧠 Memory Trick

Food → TV → Factory

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Consumption Goods and Capital Goods

6 Capital goods differ from ordinary consumption goods because:
I. They are consumed immediately by the ultimate consumer.
II. They don't get transformed in the production process and continue to aid production.

A I only

B Both I and II

C II only

D Neither I nor II

💡 Short Explanation

�� Capital goods help in producing other goods and services. �� They are not directly consumed by households. �� They continue to provide productive services over multiple production cycles.

✅ Correct Answer Explanation

Capital goods such as machinery, tools, and factory equipment are used to produce other goods and services. They are not consumed immediately by the final consumer and generally do not undergo transformation into another product. Instead, they continue to aid production over several production cycles. Statement I is incorrect because immediate consumption is a feature of consumption goods, not capital goods. Statement II is correct because capital goods continue to assist production without being transformed into the final product. Therefore, Option C (II only) is correct.

❓ Why Other Options Are Incorrect

�� Option A → I only
Incorrect because Statement I is false.
�� Option B → Both I and II
Incorrect because Statement I is incorrect.
�� Option D → Neither I nor II
Incorrect because Statement II is true.

🎯 Strategy

Used

Option Grouping

Application:

Evaluate each statement separately based on the characteristics of capital goods.

Final Logic:

Only Statement II correctly describes capital goods; therefore, Option C is correct.

🧠 Memory Trick

Capital Helps, Doesn't Get Used Up

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Capital Goods

7 Assertion (A): Automobiles and home computers are consumer durables.
Reason (R): They are extinguished by immediate or short-period consumption.

A Both false

B A true, R false

C Both true, R explains A

D A false, R true

💡 Short Explanation

�� Consumer durables provide utility over several years. �� Automobiles and home computers are consumer durables. �� They are not exhausted through immediate consumption.

✅ Correct Answer Explanation

The Assertion is correct because automobiles and home computers are examples of consumer durables that provide services for a long period. The Reason is incorrect because consumer durables are not extinguished immediately after use. Instead, they continue providing utility for many years before they wear out. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Both false
Incorrect because the Assertion is true.
�� Option C → Both true, R explains A
Incorrect because the Reason is false.
�� Option D → A false, R true
Incorrect because the Assertion is true and the Reason is false.

🎯 Strategy

Used

Elimination

Application:

Evaluate the Assertion and Reason independently before selecting the appropriate combination.

Final Logic:

The Assertion is true while the Reason contradicts the definition of consumer durables; therefore, Option B is correct.

🧠 Memory Trick

Durable = Long Life

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Consumer Durables

8 Because capital goods gradually undergo wear and tear over time, they require:

A Repair or gradual replacement

B Immediate transformation into intermediate goods

C Complete extinction after a single use

D Exclusion from the gross investment calculation

💡 Short Explanation

�� Capital goods depreciate over time. �� Repair and replacement maintain productive capacity. �� Replacement investment preserves capital stock.

✅ Correct Answer Explanation

Capital goods such as machines and factory equipment experience wear and tear due to continuous use. This process is known as depreciation. To maintain the productive capacity of an economy, these assets must be repaired or gradually replaced. Option A correctly states the requirement for maintaining capital goods. Option B is incorrect because capital goods are not converted into intermediate goods. Option C is incorrect because capital goods are durable assets. Option D is incorrect because replacement investment is included in gross investment. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Immediate transformation into intermediate goods
Capital goods assist production but are not transformed into raw materials.
�� Option C → Complete extinction after a single use
This describes perishable consumption goods rather than capital goods.
�� Option D → Exclusion from the gross investment calculation
Replacement investment forms part of gross investment.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

The phrase "wear and tear" directly relates to depreciation and replacement.

Final Logic:

Depreciated capital requires repair or replacement; therefore, Option A is correct.

🧠 Memory Trick

Wear → Repair → Replace

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Depreciation and Capital Stock

9 If a simple economy produces 100 final shirts at Rs 500 each and 50 final tables at Rs 2000 each, what is the aggregate monetary value of final output?

A 150 units

B Rs 100,000

C Rs 250,000

D Rs 150,000

💡 Short Explanation

�� Total output is measured using monetary value. �� Add the value of all final goods. �� Sum the values of shirts and tables.

✅ Correct Answer Explanation

Calculate the value of each final good separately. Value of shirts = 100 × Rs 500 = Rs 50,000 Value of tables = 50 × Rs 2,000 = Rs 1,00,000 Aggregate monetary value = Rs 50,000 + Rs 1,00,000 = Rs 1,50,000 Thus, the correct answer is: Option D = Rs 150,000

❓ Why Other Options Are Incorrect

�� Option A → 150 units
This measures quantity, not monetary value.
�� Option B → Rs 100,000
Ignores the value of shirts.
�� Option C → Rs 250,000
Incorrect total after calculation.

🎯 Strategy

Used

Substitution

Application:

Substitute the numerical values into the formula:
Total Output = Price × Quantity of each final good.

Final Logic:

Rs 50,000 + Rs 1,00,000 = Rs 1,50,000; therefore, Option D is correct.

🧠 Memory Trick

Output = Price × Quantity

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Monetary Valuation of Output

10 While dealing with the value of output, the value of final goods already includes the value of _____, meaning counting them separately highly exaggerates the final value.

A monetary flows

B fixed capital

C intermediate goods

D consumption durables

💡 Short Explanation

�� Intermediate goods are used in producing final goods. �� Their value is already included in the final product. �� Counting them separately causes double counting.

✅ Correct Answer Explanation

The value of intermediate goods becomes part of the value of final goods during production. Therefore, while calculating national income, only final goods are counted. Counting intermediate goods separately would duplicate their value and overestimate national income. Option A is incorrect because monetary flows are not embedded in final goods. Option B is incorrect because fixed capital is not included as an intermediate input in this context. Option C correctly identifies intermediate goods. Option D is incorrect because consumer durables are final goods. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → monetary flows
Monetary flows are not components of final goods.
�� Option B → fixed capital
Fixed capital provides productive services but is not counted as an intermediate input.
�� Option D → consumption durables
Consumer durables themselves are final goods.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Focus on the phrase "already includes the value," which directly refers to intermediate goods.

Final Logic:

Only intermediate goods are already included in the value of final goods; therefore, Option C is correct.

🧠 Memory Trick

Final Goods Already Include Intermediate Goods

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Avoiding Double Counting

11 A farmer producing cotton sells it to a spinning mill, which turns it into yarn. In this specific productive process, the raw cotton acts as:

A A consumer durable

B An input (intermediate good)

C A capital good

D A final consumption good

💡 Short Explanation

�� Raw cotton is used in further production. �� It is transformed into yarn. �� Therefore, it is an intermediate good (input).

✅ Correct Answer Explanation

Raw cotton produced by the farmer is not meant for final consumption. Instead, it is purchased by the spinning mill to manufacture yarn. Since it undergoes further processing before reaching the final consumer, it functions as an intermediate good (input). Therefore, Option B is correct. Option A is incorrect because consumer durables are final goods used repeatedly by households. Option B is correct because raw cotton serves as an input in production. Option C is incorrect because capital goods assist production but are not transformed into the final product. Option D is incorrect because raw cotton is not purchased for final consumption.

❓ Why Other Options Are Incorrect

�� Option A → A consumer durable
Consumer durables provide long-term utility to households and are not production inputs.
�� Option C → A capital good
Capital goods help produce other goods but remain intact during production, unlike raw cotton.
�� Option D → A final consumption good
Raw cotton undergoes further processing and therefore is not a final good.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Identify whether the good undergoes further production before reaching the consumer.

Final Logic:

Since raw cotton is processed into yarn, it is an intermediate good; therefore, Option B is correct.

🧠 Memory Trick

Raw Material = Intermediate Good

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Intermediate Goods

12 A baker buys Rs 50 of wheat to make Rs 200 of bread. To avoid double counting, the net contribution (value added) of the baker is calculated as:

A Rs 200 - Rs 50 = Rs 150

B Rs 200 + Rs 50 = Rs 250

C Rs 200 / Rs 50 = 4

D Rs 50

💡 Short Explanation

�� Value added equals output value minus input value. �� It prevents double counting. �� Only the baker's contribution is counted.

✅ Correct Answer Explanation

The Value Added Method measures the additional value created at each stage of production. Formula: Value Added = Value of Output − Value of Intermediate Inputs Here, Value of bread = Rs 200 Value of wheat = Rs 50 Therefore, Value Added = Rs 200 − Rs 50 = Rs 150 Hence, Option A is correct. Option A correctly calculates value added. Option B double counts the value of wheat. Option C gives a ratio rather than value added. Option D shows only the cost of the input.

❓ Why Other Options Are Incorrect

�� Option B → Rs 200 + Rs 50 = Rs 250
This counts the wheat twice and leads to double counting.
�� Option C → Rs 200 / Rs 50 = 4
This calculates a ratio and has no relevance to value added.
�� Option D → Rs 50
This represents only the cost of wheat and ignores the baker's contribution.

🎯 Strategy

Used

Substitution

Application:

Substitute the given values into the value-added formula.

Final Logic:

Value Added = 200 − 50 = Rs 150; therefore, Option A is correct.

🧠 Memory Trick

VA = Output − Input

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Value Added Method and Double Counting

13 Variables that are measured at a specific point in time, and do not refer to a period, are formally known as:

A Flow variables

B Investments

C Depreciation allowances

D Stock variables

💡 Short Explanation

�� Stock variables are measured at one point in time. �� They do not require a time period. �� Wealth and inventory are common examples.

✅ Correct Answer Explanation

A stock variable measures the quantity of an economic variable at a particular point in time. Examples include wealth, inventory, and capital stock on a given date. Unlike flow variables, stock variables do not require a time period for measurement. Option A is incorrect because flow variables require a time period. Option B is incorrect because investment is a flow variable. Option C is incorrect because depreciation is measured over time. Option D correctly identifies stock variables.

❓ Why Other Options Are Incorrect

�� Option A → Flow variables
Flows measure activities occurring over a period of time.
�� Option B → Investments
Investment is measured per month or year and is therefore a flow.
�� Option C → Depreciation allowances
Depreciation is calculated over an accounting period.

🎯 Strategy

Used

Dimensional/Unit Analysis

Application:

Determine whether the variable requires a time period or is measured at a single instant.

Final Logic:

Only stock variables are measured at a particular point in time; therefore, Option D is correct.

🧠 Memory Trick

Stock = Snapshot

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Stock Variables

14 Match the economic variable (List 1) with its classification (List 2):

List 1	List 2
1. Inventory of unsold goods on Jan 1st	a. Flow
2. Monthly salary of a worker	b. Flow
3. Number of machines in a factory today	c. Stock
4. Annual profit of a corporation	d. Stock

A 1-a, 2-b, 3-c, 4-d

B 1-c, 2-a, 3-d, 4-b

C 1-b, 2-a, 3-d, 4-c

D 1-d, 2-c, 3-b, 4-a

💡 Short Explanation

�� Inventory is a stock variable. �� Salary and profit are flow variables. �� Number of machines represents capital stock.

✅ Correct Answer Explanation

Inventory of unsold goods on Jan 1st is measured at a particular date, so it is a stock. Monthly salary is earned over a month, making it a flow. Number of machines today is measured at a specific point in time, so it is a stock. Annual profit is earned during a year, making it a flow. Thus, the correct matching is: 1-c, 2-a, 3-d, 4-b Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → 1-a, 2-b, 3-c, 4-d
Incorrectly classifies inventory as a flow.
�� Option C → 1-b, 2-a, 3-d, 4-c
Incorrectly classifies inventory as a flow and profit as a stock.
�� Option D → 1-d, 2-c, 3-b, 4-a
Incorrectly classifies salary as a stock and machines as a flow.

🎯 Strategy

Used

Option Grouping

Application:

Separate stock variables from flow variables before matching them.

Final Logic:

Inventory and machines are stocks, while salary and profit are flows; therefore, Option B is correct.

🧠 Memory Trick

Today = Stock | Per Month/Year = Flow

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Stock and Flow Variables

15 The change in a firm's inventory calculated over a specific year is considered:

A A stock variable

B A flow variable

C A static variable

D A capital loss

💡 Short Explanation

�� Change in inventory occurs over a period. �� Any change measured during a year is a flow. �� Inventory itself is a stock, but its change is a flow.

✅ Correct Answer Explanation

Inventory existing on a particular date is a stock variable. However, the change in inventory during a year measures the increase or decrease over a specified period. Since it refers to activity over time, it is classified as a flow variable. Option A is incorrect because only the inventory level at a point in time is a stock. Option B correctly identifies the annual change as a flow. Option C is incorrect because "static variable" is not a standard national income concept. Option D is incorrect because a change in inventory is not necessarily a capital loss. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → A stock variable
The inventory level is a stock, but its annual change is a flow.
�� Option C → A static variable
This is not a recognized NCERT classification.
�� Option D → A capital loss
Inventory may increase or decrease; it is not automatically a capital loss.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Focus on the phrase "over a specific year," which indicates a flow variable.

Final Logic:

Any economic variable measured over a period is a flow; therefore, Option B is correct.

🧠 Memory Trick

Stock Changes = Flow

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Stock and Flow Variables

16 Why must income or output be defined over a delineated time period?

A Because inherently these concepts measure activity occurring over time, making them meaningless without a time frame.

B Because stock variables require time periods for calculation.

C Because double counting can only be avoided at a single point in time.

D Because intermediate goods do not have a defined lifespan.

💡 Short Explanation

�� Income and output are flow variables. �� Flow variables are measured over a specified period. �� Without a time period, they have no economic meaning.

✅ Correct Answer Explanation

Income and output represent economic activities that occur continuously over time. Therefore, they are classified as flow variables, which must always be measured over a specific period such as a month, quarter, or year. Without a defined time period, concepts like income or output become meaningless because they cannot indicate the amount of economic activity performed. Option A correctly explains the nature of flow variables. Option B is incorrect because stock variables are measured at a particular point in time. Option C is incorrect because avoiding double counting is unrelated to defining flow variables. Option D is incorrect because the lifespan of intermediate goods has no connection with measuring income or output. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

�� Option B → Because stock variables require time periods for calculation.
Stock variables are measured at a specific point in time and do not require a time period.
�� Option C → Because double counting can only be avoided at a single point in time.
Double counting is avoided by counting only final goods or by using the value-added method, not by measuring variables at a single point in time.
�� Option D → Because intermediate goods do not have a defined lifespan.
The useful life of intermediate goods is unrelated to the definition of flow variables.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Focus on the phrase "defined over a delineated time period," which directly indicates a flow concept.

Final Logic:

Income and output are flow variables measured over time; therefore, Option A is correct.

🧠 Memory Trick

Income = Per Year = Flow

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Flow Variables

📄 Passage

"In contrast, capital goods or consumer durables once produced do not wear out or get consumed in a delineated time period. In fact capital goods continue to serve us through different cycles of production. The buildings or machines in a factory are there irrespective of the specific time period. There can be addition to, or deduction from, these if a new machine is added or a machine falls in disuse and is not replaced. These are called stocks."

According to the passage, why are factory buildings considered stocks?

A Because they wear out immediately

B Because they are added every month

C Because they are measured as a flow of production

D Because they are there irrespective of a specific time period

💡 Short Explanation

�� Factory buildings exist at a particular point in time. �� They continue to provide services over many years. �� Therefore, they are classified as stock variables.

✅ Correct Answer Explanation

The passage clearly states that factory buildings and machines exist irrespective of a specific time period. They are measured at a particular point in time and continue serving production over many years. Such variables are called stocks because they represent the quantity of an asset at a given instant rather than activity over a period. Option A is incorrect because factory buildings do not wear out immediately. Option B is incorrect because they are not necessarily added every month. Option C is incorrect because factory buildings are stock variables, not flows. Option D correctly reflects the statement in the passage. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

�� Option A → Because they wear out immediately
Factory buildings are durable assets and depreciate gradually over time.
�� Option B → Because they are added every month
Buildings may be added occasionally, but this is not the reason they are classified as stocks.
�� Option C → Because they are measured as a flow of production
Buildings are measured at a point in time and therefore represent stock variables.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Use the exact wording of the passage to identify the correct option.

Final Logic:

The passage explicitly states that factory buildings exist irrespective of a specific time period; therefore, Option D is correct.

🧠 Memory Trick

Building = Stock

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Stock Variables

📄 Passage

If a new machine is added to the factory during the year, this specific addition over the year is a:

A Final stock

B Capital extinction

C Flow variable

D Double counted value

💡 Short Explanation

�� Addition of a machine occurs during a period. �� Changes in stock are measured as flows. �� Investment is a flow variable.

✅ Correct Answer Explanation

The number of machines in a factory at a particular date is a stock variable. However, the addition of a new machine during the year represents a change in that stock over a specified period. Any change measured over time is a flow variable. This addition is also an example of investment. Option A is incorrect because the addition is not itself a stock. Option B is incorrect because "capital extinction" is not the relevant concept. Option C correctly identifies the annual addition as a flow variable. Option D is incorrect because adding a machine does not involve double counting. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Final stock
The machine contributes to stock, but the addition during the year is a flow.
�� Option B → Capital extinction
The question refers to an addition of capital, not its destruction.
�� Option D → Double counted value
The addition of a machine has no connection with double counting.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

Pay attention to the phrase "during the year," which indicates a flow variable.

Final Logic:

An addition measured over a period is a flow; therefore, Option C is correct.

🧠 Memory Trick

Addition During Year = Flow

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Stock and Flow Variables

19 All the capital goods produced in a year, including those meant for replacing existing capital, constitute the _____ of an economy.

A Net investment

B Gross investment

C Intermediate consumption

D Value added

💡 Short Explanation

�� Gross investment includes replacement investment. �� It also includes net additions to capital stock. �� It measures the total investment made during a year.

✅ Correct Answer Explanation

Gross investment refers to the total production of capital goods during a year, including both: Replacement of depreciated capital, and Net additions to the capital stock. Since the question specifically includes capital goods meant for replacing existing capital, it refers to gross investment. Option A is incorrect because net investment excludes depreciation. Option B correctly includes both replacement and new investment. Option C refers to inputs consumed during production. Option D measures contribution to production rather than investment. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Net investment
Net investment is obtained only after deducting depreciation.
�� Option C → Intermediate consumption
Intermediate consumption refers to goods used up during production.
�� Option D → Value added
Value added measures the additional value created during production, not capital formation.

🎯 Strategy

Used

Elimination

Application:

Look for the option that includes replacement investment, which distinguishes gross investment from net investment.

Final Logic:

Investment including replacement equals gross investment; therefore, Option B is correct.

🧠 Memory Trick

Gross = Total (Replacement + New)

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Gross Investment

20 If Gross Investment is Rs 10,000 crores and Depreciation (replacement of existing capital) is Rs 2,000 crores, what is the new capital formation (Net Investment)?

A Rs 8,000 crores

B Rs 12,000 crores

C Rs 5,000 crores

D Rs 20,000 crores

💡 Short Explanation

�� Net investment measures the actual increase in capital stock. �� Depreciation is deducted from gross investment. �� The remaining amount is new capital formation.

✅ Correct Answer Explanation

The NCERT formula is: Net Investment = Gross Investment − Depreciation Substituting the values: Gross Investment = Rs 10,000 crores Depreciation = Rs 2,000 crores Net Investment = Rs 10,000 − Rs 2,000 = Rs 8,000 crores Hence, Option A is correct. Option A correctly applies the formula. Option B incorrectly adds depreciation. Option C gives an incorrect difference. Option D is unrelated to the calculation.

❓ Why Other Options Are Incorrect

�� Option B → Rs 12,000 crores
Depreciation should be subtracted, not added.
�� Option C → Rs 5,000 crores
This value does not result from the given data.
�� Option D → Rs 20,000 crores
This overstates the actual investment and ignores depreciation.

🎯 Strategy

Used

Substitution

Application:

Apply the standard NCERT formula by substituting the given numerical values.

Final Logic:

Net Investment = Gross Investment − Depreciation = Rs 8,000 crores; therefore, Option A is correct.

🧠 Memory Trick

Net = Gross − Depreciation

📚 Class XII – Introductory Macroeconomics – Chapter: National Income Accounting – Topic: Gross Investment and Net Investment

CUET UG Economics Booster Test 2 - Basic Concepts of Macroeconomics

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